Health care and Pharmaceuticals

SUMMARY

• Third largest pharmaceuticals market by 2020 in terms of incremental growth.
• 20% of global exports in generics, making it the largest provider of generic medicines globally.
• USD 45 Billion in revenue by 2020, the revenue of USD 55 billion by 2020 as a base case, and can grow to USD 70 billion in an aggressive case scenario.
• USD 26.1 Billion in generics by 2016.
• USD 200 Billion to be spent on infrastructure by 2024.
• India's filing of Drug Master Files's (DMF's) with USFDA as of Dec 2013 is 3411, the highest filed by any country in the world.
• Total exports of Drugs, Pharmaceuticals for 2013-14 at USD 15,095 million, recording a growth rate of 2.5% over the corresponding period of previous years.

FDI POLICY

• 100% Foreign Direct Investment (FDI) is allowed under the automatic route for Greenfield pharma.
• 100% Foreign Direct Investment (FDI) is allowed under the government route for brownfield pharma in up to 74% FDI is under automatic route and beyond 74% is under the government approval route.

Other conditions:

• ‘Non-compete’ clause would not be allowed except in special circumstances with the approval of the Foreign Investment Promotion Board.
• The prospective investor and the prospective investee are required to provide a certificate along with the FIPB application as per Annexure-1.
• The government may incorporate appropriate conditions for FDI in brownfield cases, at the time of granting approval.

SECTOR POLICY

The National Pharmaceutical Pricing Policy, 2012 (NPPP-2012) has been notified on December 7, 2012.

The salient features of the NPPP-2O12 are as under:

• The regulation of prices of drugs on the basis of the essentiality of drugs as specified under the National List of Essential Medicines (NLEM) - 2011.
• The regulation of prices of drugs on the basis of regulating the prices of formulations only.
• The regulation of prices of drugs on the basis of fixing the ceiling price of formulations through Market-Based Pricing.
• The provision of exemptions to drugs manufactured through indigenous R&D from price control for five years.
• A Drug Price Control Order 2013 has been notified in May 2013 to implement the provisions of NPPP-2012.

FINANCIAL SUPPORT

KEY PROVISIONS IN THE 2015-16 UNION BUDGET:

• SETU (Self Employment and Talent Utilization) to be established as a techno-financial, incubation and facilitation programme to support all aspects of a startup business. USD 15.38 million to be set aside as initial amount in National Institution for Transforming India (NITI) Aayog.
• Atal Innovation Mission (AIM) to be established in NITI Aayog to provide an Innovation Promotion Platform involving academicians, and drawing upon national and international experiences to foster a culture of innovation, research and development. A sum of USD 23.08 million will be earmarked.
• The threshold limit for applicability of transfer pricing regulations to specified domestic transactions increased from USD 0.77 million to USD 3.08 million.
• Service Tax exemption for common effluent treatment plant operators.
• Rate of income tax on royalty and fees for technical services reduced from 25% to 10% to facilitate technology inflow.
• The time limit for taking CENVAT credit on inputs and input services has been increased from six months to one year.

Export Incentives have been envisaged in the following schemes:

• Focus product scheme.
• Special focus product scheme.
• Focus market scheme.
• Export promotion capital goods scheme.

Area-based Incentives:

• Incentives for units in SEZ/NIMZ as specified in respective acts.
• Setting up projects in special areas such as the North-east, Jammu & Kashmir, Himachal Pradesh and Uttarakhand.

Units in Clusters:

• A scheme for the development of common facilities like effluent treatment, testing centres etc.

State Incentives:

• Besides the above, each state in India offers additional incentives for industrial projects.
• Incentives are in areas like subsidised land cost, relaxation in stamp duty on sale/lease of land, power tariff incentives, concessional rate of interest on loans, investment subsidies/tax incentives, backward areas subsidies, special incentive packages for mega projects etc.

R&D Benefits

Industry/private sponsored research programmes:

• A weighted tax deduction is given under section 35 (2AA) of the Income Tax Act.
• A weighted deduction of 200% is granted to assesses for any sum paid to a national laboratory, university or institute of technology, or specified persons with a specific direction provided that the said sum is used for scientific research within a programme approved by the prescribed authority.

Companies engaged in manufacture having an in-house R&D centre:

• Weighted tax deduction of 200% under section 35 (2AB) of the Income Tax Act for both capital and revenue expenditure incurred on scientific research and development. Expenditure on land and buildings are not eligible for deduction.
• A national centre to help develop bulk drugs and facilitate their research is being set up in Hyderabad.
• Duty-free import of Pharmaceuticals reference standards.

INVESTMENT OPPORTUNITIES

• India is expected to be the third-largest global market for active pharmaceutical ingredients by 2016, with a 7.2% increase in market share.
• Indian pharma companies registered 49% of overall DMF filed in the US in 2012.
• The Contract Research and Manufacturing Services industry – estimated at USD 8 Billion in 2015, up from USD 3.8 Billion in 2012. The market has more than 1000 players.
• The formulations industry – India is the largest exporter of formulations with 14% market share and ranks 12th in the world in terms of export value. Double-digit growth is expected over the next five years.